Self financing has become the big principle that guides university education. Rather than the state funding higher education, it will be the students who will do so by paying fees. These fees to be financed by loans from the state. The constant background noise that accompanies these ‘new’ policies is that after years of overspending, the government has become so indebted that what has to be done is to cut government spending to balance the books. It has been stated so often and by so many authoritative people that it has been become one of the accepted truths of our culture. However it is not true, it just that a series of misapprehensions of the recent past have been manipulated by powerful groups in society to produce a climate of opinion that makes possible a remaking of the social order in their interest. They want a small state, whose relatives low cost will enable them to minimise their tax burden and use their huge tax free incomes to indulge in conspicuous over consumption.

Part of that remaking of society is the introduction of student loans. It is so familiar that it hardly needs repeating, but with increasing numbers of students attending university the old system of financing higher education was said to unaffordable. When Lord Browne in his report recommended increasing student fees to £9000 per annum, his understanding of the situation was never queried. Why did nobody see the fault in his analysis which implied that a system in which all tax payers contributed a small sum each to higher education was less affordable than a system in which a much smaller group (all current undergraduates) would each pay a much larger sum to finance higher education. Logic suggests that this policy might be fallacious, why can a few afford what the nation as a whole cannot?

Much was made of the fact that under this new system even these much larger monthly payments would be reasonable and easily affordable. Modest is one of these words which can mean many things to many people. Modest for an oil executive or well paid cabinet minister is not the same as modest for a young professional. Those I know repaying their loan would not use the word modest to describe their repayments.

The phrase ‘smoke and mirrors’ comes to mind when describing the governments student loan policy. It will be many years before student loan repayments make a substantial contribution to the funding of higher education. Total government spending on higher education will not decrease for many years as the increase in loan repayments will take a number of years to take effect. Will it be twenty or thirty years before we see student loan repayments making a substantial contribution to higher education funding? When will break even point be reached? Even the government recognises that there a problem and is increasing the interest payments made on new loans so as to increase the graduate contributions to funding education. What matters is not that it will take decades for the policy to become self funding, if ever, but that the government says it will happen. Appearance counts for everything, reality can be safely ignored. Particularly as an overwhelming right wing media are conveniently myopic when it comes to the implementation of their favourite policies.

With the increasing commercialisation of the university sector it is unlikely that £9000 pa will remain the maximum fees for university. Foreign students pay in excess of £20,000 per annum in fees. At this level of payment the universities earn a surplus/profit on each student; it cannot be long before the universities find some new reason to negotiate a further fees increase. Only the most naive can believe that fees will remain at this level for any length of time. Universities as they become increasingly commercialised will increasingly behave any other business. Can we expect the annual announcement of a fees rise as occurs in the rail industry?

There is another possibility and that is that the universities will cut costs to squeeze as much of a cash as they can out of each student. As the main costs faced by a university is staff costs, there is for the less scrupulous Vice Chancellor lots of opportunities to do this.They can reduce staff student contact time, increasingly using IT as a staff free teaching resource or increasing staff student ratios (given the possibilities offered by IT the 1000 plus lecture is feasible). For the enterprising Vice Chancellor the possibilities are endless. Less prestigious universities will possibly lower fees to attract students to keep up numbers so as to keep them viable. However the price to be paid for such low cost universities will be horrendous. Their financial viability will only be secured by economising on all those things that make university education desirable. Financial objectives will increasingly come to dominate in universities at the expense of educational objectives.

Of concern must be the fact that the new system of university finance will be managed by for-profit businesses. Already it is reported in the press that the government is considering selling off its student loans book to a private provider. These loans are at present interest free, to make them more attractive to a potential buyer the government is considering adding interest to these loans. The costs of administering the student loans system will be considerable. In the past the American health care system was considered as an example of how not to manage a health care system, as 40% of health care costs went into the management of the system. Now any cabinet minister would tell you that it was a price worth paying for the efficient delivery of health care at the point of delivery. What share of the proceeds of loan repayments will go to the managers of the student finances? Whatever it might be, it will diminish the contribution of loan repayments to the financing of higher education.

When the government sells student debt to for profit companies, it will have to do so in way that guarantees these companies a profit. The obvious way to do that will be to sell it at a discount. If the private company pays less than the market value of the student debt, it is guaranteed a profit in the event of a shortfall in repayments. Whatever deal the government has with private companies it can only diminish the contribution of loan repayments to the financing of higher education.

No mention has been made of the difficulties of collecting these loan repayments. Many graduates are highly mobile in terms of jobs and location. A maths graduate from Oxbridge might decide to work for a New York finance house, only returning to the UK at retirement age. Such a person would given the current rules avoid repaying any of their student loan. The commercial organisations managing the repayments system would be under an obligation not only to remain viable but to make a substantial return on their investment. The only way this could be achieved is to increase the costs of loan repayments on those who cannot avoid making repayments, that is those residing in the UK. The government has shown that it is not adverse to such an arrangement, as it is considering charging interest on what were formerly interest free loans.

The change in funding is claimed to be a revolution, as universities will now be independent of the government as they will depend in future from their income from their customers the students. What can be best described as the ‘free market fallacy’. With the universities no longer dependent on government funding, they will be free it is said from government dictates on curriculum and be able to set a curriculum that needs the needs of their students and the UK economy. There is the sting in the tail, they must meet the needs of the UK economy. Universities will be obliged to provide those courses that will guarantee the employability of their students. This explains why there is a large increase in business and business related courses and a decline in the humanities, the range of modern languages on offer is rapidly diminishing and subjects such as philosophy which have no business application are disappearing from the curriculum altogether. It is an attack on the enlightenment project, that of education for education’s sake.

The strings by which the government puppet masters control the universities will no longer be visible, but they will remain in place never the less.

This ‘realist’ government has said it is prepared to accept that universities may be allowed to go bankrupt, it wants the stiff winds of competition to weed out those weak universities that provide a poor quality education. One suspects that what the government means is those new universities that attract large numbers of non traditional lower income students which instead of teaching them useful vocational and employment skills teach subjects that fall within the ‘liberal education’ ethos. Government boasting about the opening of private universities that focus on providing vocational education at lower cost than traditional universities show the direction in which the coalition government want higher education move.

The change in the attitudes university education is reflected in the views of two contrasting philosophers. Michael Oakshott writing on education in the 1960′ s defined education as the initiation into new areas of experience and knowledge which was in contrast to Keith Joseph who 20 years later saw education as being limited to those subject areas that had economic utility. Rather than opening up young minds to new experiences Keith Joseph wanted to limit the experiences of young people to those that had economic utility. Fine arts to be replaced by accountancy etc. It is Keith Joseph thinking rather than that of Michael Oakshott that has dominated government policy towards the universities.

Government policy is characterised by naivety and ignorance of the world beyond the confines of Westminster and dining rooms of Notting Hill. They foresee an exciting future in which the universities freed from government control will compete against each other and that competition will drive up standards as the universities compete for students. Any cursory examination of the economy will demonstrate that free markets are dominated by a few big firms. There are not numerous suppliers engaged in fierce competition with each other. We speak of the ‘big four or five’ when speaking of the banks, supermarkets, energy suppliers etc. not the numberless independents. One of the economists claimed by the government to provide the evidence for their policy is J S Schumpeter, but one suspects that their reading of his books has not been very thorough. He writes that although markets start as competitive they end up as monopolistic, that is dominated by a few large suppliers. The most successful firms eliminate competition by either driving out of the market their less successful competitors or by absorbing them into their business. By freeing the university sector from government control and opening it up to market forces, there is no reason why the university market should not follow the pattern outlined by Schumpeter.

Already the government has unwittingly made moves to reducing competition in this sector. They have suggested that the most successful universities should set up an external degree system whereby their students study for their degrees in local outreach institutions, such as further education colleges. This outsourcing of degrees will undermine smaller local universities that lack the prestige and resources of the major universities resulting in a consolidation within the university sector as universities close.
The government has said it is prepared too see universities close. The assumption being that the high quality universities will prosper and expand. However this is to misunderstand the market system. One factor in attaining market dominance is quality of the product, others equally important factors such as cost efficiencies may have little to do with the quality of the product. What will happen is that the new private universities will be best placed to take advantage of the new opportunities. They are the most cost efficient, they offer the least cost degrees and have the marketing skills of a successful business institution. It could well be that they supplant Oxbridge and the Russell Group as the dominant players in the university market. What we are looking at to borrow an analogy from the grocery trade is a future dominated by the ALDI university.

If cost is to be the deciding factor university education for the majority of students will be changed. It will no longer be the three year course at some hallowed institution but a low cost course lacking most of the features associated with a high quality education. An out sourced degree course at an FE college will be considerably inferior to one undertaken at the well resourced home university.

Is ASDA another precursor of the future? It is planning to offer degree courses to its own staff. These degrees will be both vocational and low cost. The two criteria which the government believes are the two key criteria for university education.

What the government and its supporters fail to realise is that the market has its own logic. If the government is responsible for the direction of education that direction is open to debate and it is likely that university education will be directed towards achieving a variety of desirable goals, which at its best is education for education’s sake. However a market dominated system directed to maximising profit will focus on a narrow range of courses that maximise returns. If profit maximisation is to be attained by cost cutting all innovation will disappear as new ideas cost money and would be contrary to the least cost consensus that prevailed in universities. Already such changes can be seen in the university sector with the increasing proliferation of business studies courses, increasingly universities will teach ‘to do’ rather than ‘to think’. The uniform mediocrity imposed by the market will be a more successful suppressor of free thinking that any of the repressive institutions of the past. Cost is a far better censor than the Inquisition.